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Deal v. First and Farmers National Bank, Inc.

Court of Appeals of Kentucky

March 31, 2017



          FOR APPELLANT: R. Aaron Hostettler London, Kentucky.

          FOR APPELLEE: John S. Gillum Somerset, Kentucky.



          JONES, JUDGE

         Appellant, Cindy Deal, appeals the Pulaski Circuit Court's order granting summary judgment in favor of Appellee, First and Farmers National Bank, Inc. Having reviewed the record in conjunction with the applicable legal authorities, we affirm.

         I. Background

         Cindy Deal, the Appellant, obtained a money judgment in the amount of $64, 600, against her ex-husband, James Deal, on or about February 24, 2012. See Cindy Deal v. Wilson & Deal 2-Way, et al., Pulaski Circuit Court, Div. II, Civil Action No. 10-CI-00838. In an attempt to collect that judgment, Cindy's attorney took a post-judgment deposition of James during which James testified that he maintained a deposit account and thought he also probably had some certificates of deposit ("CDs") with First and Farmers National Bank, Inc. (the "Bank").[1]

         Based on James's testimony, Cindy issued a non-wage garnishment order to the Bank on May 11, 2012. The Bank received the Garnishment Order on May 16, 2012, and filed its answer using the AOC-150.1 form[2] enclosed with the garnishment order. In pertinent part, the Bank answered as follows:

1. The name of the Judgment Debtor is JAMES DEAL.
2. At the time of the service of this order, the Garnishee herein is indebted to the Judgement Debtor or holds money belonging to the Judgment Debtor in the amount of $ NONE.
3. Other property belonging to the Judgment Debtor and held by me is as follows: NONE.
4. I, or I on behalf of the Garnishee herein, state that there is no other money, property or other evidence of debt in my possession that belongs to the Judgment Debtor.
5. I, or I on behalf of the Garnishee, have FORWARDED TO THE ATTORNEY named on the reverse side the amount of money so held by me to the extent of the amount due plus costs as shown on the reverse.
6. If I, or I on behalf of the Garnishee, hold property (listed above) other than money which I am unable to forward, I hereby disclose (in Paragraph 3 above) such property and will hold and safely keep such property pending further Order of the Court.
7. In addition, I have sent the original of this Answer and the Order on the reverse to the Court, and copies to the attorney named on the reverse and the Judgment Debtor.

         Puzzled by the inconsistencies between the Bank's answers to the garnishment order and James's testimony, Cindy's attorney, Aaron Hostettler, contacted the Bank's vice president, Alan Houck, via email on May 22, 2012. Mr. Hostettler explained why he believed James did have accounts with the Bank and requested that the Bank investigate the matter further, stating that either James had committed perjury or the Bank had failed to reasonably inquire into James's holdings at the Bank.[3] Mr. Hostettler then sent two additional emails to the Bank's representatives, in which he stated that he needed an explanation as to what happened to the accounts and would be setting times for depositions. Mr. Houck responded to Mr. Hostettler's original email the following day. In pertinent part, his email stated that:

[U]nfortunately, our answer still remains none to the bank holding any garnishable funds or assets of the named debtor. Is it possible that Mr. Deal was confused and/or gave the wrong name of the bank holding his CD's? Or, could the deposits have been held under another name or tax id #?
. . .
Is it possible to review the deposition questions and answers and make sure the name of the bank holding the CD accounts is truly First & Farmers National Bank?

(emphasis added).

         Two more emails from Mr. Hostettler to representatives at the Bank followed, to which he received no response. Mr. Hostettler then contacted counsel for James seeking an explanation as to what had happened to James's accounts. No explanation was given. For reasons that are not entirely clear from the record, Cindy did not seek any formal discovery from the Bank, such as the deposition her former co-counsel had suggested.

         Instead, believing that James had perjured himself, Cindy moved the court to hold James in contempt on June 18, 2012. In July of 2012, the Pulaski Circuit Court held contempt hearings, which culminated in the court indicating that it would hold James in contempt and require him to submit to another deposition. At some point before the order was entered, James's attorney provided Mr. Hostettler with copies of James's bank statements. These statements indicated that James did, in fact, have a deposit account with a positive account balance at the Bank. The statements also indicated, however, that all funds in James's account at the Bank were in the form of veteran's or Social Security benefits, which federal law exempts from garnishment.

         Upon discovering that James did have an account at the Bank, Mr. Hostettler reinitiated email correspondence with Mr. Houck and other Bank representatives seeking an explanation for what he felt was an "egregious misrepresentation" by the Bank. Mr. Houck responded that when the Bank received the garnishment order the "compliance folks" advised the Bank that the funds in James's account were non-garnishible and that the Bank was required to respond to the garnishment order in the way that it did for "confidentiality reasons." Further, Mr. Houck emphasized that in all of his emails to Mr. Hostettler he had explicitly stated that James did not have garnishable funds deposited with the Bank, not that he had no funds with the Bank. Cindy then filed a motion to hold the Bank in contempt, which was overruled. Even though the trial court overruled Cindy's contempt motion, it instructed that she could file a separate action against the Bank, if she so desired.

         On January 23, 2013, Cindy filed the present action alleging that the Bank's answer to the garnishment order contained false statements of material fact and that subsequent communications from the Bank either contained further false statements of material fact or made material and substantial omissions of material fact on which Cindy had relied to her detriment. The complaint brought allegations under KRS[4] 425.526, which creates a cause of action for a garnishee's failure to make a satisfactory disclosure in response to a garnishment order. In the alternative, Cindy asserted common law claims of fraudulent misrepresentation and/or fraudulent omissions of material fact. Cindy claimed that the Bank was liable to her for the entire amount of the judgment she held against James, attorney's fees, and punitive damages.

         The Bank moved for summary judgment on the basis that it could not be liable to Cindy as a matter of law because newly enacted federal regulations, which it had complied with, preempted the state law claims that Cindy had brought against it. Specifically, the Bank pointed to the fact that 31 C.F.R.[5] § 212 mandates that if a financial institution finds that exempt funds were deposited into an account subject to an order of garnishment, the financial institution must ensure that the account holder has access to the exempt funds. As such, the Bank argued, it had no way to answer the garnishment order in a way that would comply with federal regulations. The circuit court concluded that the Bank could have simultaneously complied with both state and federal authorities by informing Cindy that James had an account with funds in it at the Bank, but that those funds could not be turned over because they were exempt from garnishment under federal law. Even though the circuit court determined that the Bank's answer was not technically in compliance with the state garnishment statutes, it held that Cindy could not prove that the Bank's actions damaged her because none of the funds in the Bank's possession were garnishable under federal law. This appeal by Cindy followed.

         II. Standard of Review

         Summary judgment is appropriate if "the pleadings, depositions, answers to interrogatories, stipulations, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." CR[6] 56.03. In hearing a motion for summary judgment, the court examines evidentiary matter not to decide any issues of fact, but to determine if a real issue exists.

         All doubts must be resolved "in a light most favorable to the party opposing the motion for summary judgment and all doubts are to be resolved in [that party's] favor." Steelvest, Inc. v. Scansteel Serv. Ctr., Inc., 807 S.W.2d 476, 480 (Ky. 1991). Thus, summary judgment is only proper "where the movant shows that the adverse party cannot prevail under any circumstances." Id. at 479. This standard has been interpreted in a practical sense, not in an absolute sense. See Perkins v. Hausladen, 828 S.W.2d 652 (Ky. 1992). "Because summary judgments involve no fact finding, this Court will review the circuit court's decision de novo." 3D Enters. Contracting Corp. v. Louisville & Jefferson Cty. Metro. Sewer Dist., 174 S.W.3d 440, 445 (Ky. 2005).

         III. Analysis

         Before delving into the specifics of Cindy's claims against the Bank, we will briefly review the applicable state and federal ...

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